Incident: The company released its report for the first quarter of 2024. 2024Q1 achieved operating income of 7.296 billion yuan, +35.84% year on month, +4.72% month on month; net profit to mother of 1,034 billion yuan, +191.19% year on month, -3.06% month on month; deducted non-net profit of 1,015 million yuan, +176.54% year on month, -3.13% month on month.
Industry prosperity increased, and sales growth drove the company's revenue growth. The company sold 16.5817 million tires in 2024Q1, +43.71% year-on-year and +11.05% month-on-month. China's tire industry has benefited from the recovery of the global car market and the continuous improvement of product competitiveness, and domestic tire production will continue to grow in 2023. According to statistics from the Tire Branch of the China Rubber Industry Association, the country's total automobile tire output in 2023 was 786 million, +17.8% over the same period last year. With the gradual end of the pressure on overseas tire markets to remove inventory, the number of imported tires in international markets such as Europe and the US has shown an improving trend. According to data from the General Administration of Customs, domestic tire exports in 2023 were 620 million pieces, +11.6% year-on-year.
24Q1 gross margin increased year-on-year, and profitability continued to grow. Thanks to the year-on-year reduction in the prices of the main raw materials required for tire production in 2023, which reduced the production costs of tire companies to a certain extent, the company's gross profit margin in 2023 was 27.64%, +9.22pct year on year. The company's 24Q1 gross margin was 27.68%, +7.36pct year over year and -5.90pct month-on-month. Overall profitability continued to grow. The company's 24Q1 net margin was 14.17%, +7.56pct yoy and -1.14pct month-on-month. The 24Q1 cost rate improved. The sales expense ratio was 3.83%, -0.25pct, -2.90pct; the management expense ratio was 3.43%, +0.68pct, and -0.16pct month-on-month; the R&D cost rate was 3.01%, -0.29pct, and -0.16pct month-on-month; the financial expense ratio was 1.03%, -1.53 pct, and -0.69pct month-on-month.
The company's overseas production capacity has gradually been released, and the degree of globalization of production capacity layout has increased. The company pioneered the establishment of overseas production bases and continued to build a global production capacity layout. Currently, the all-steel project of the Cambodian plant is in operation, and the all-steel, semi-steel and off-highway products of the Vietnam factory phase III project have all been put into operation, and production capacity is currently continuing to increase. Semi-steel radial tire projects in Cambodia and Mexico, as well as radial tire and off-road tire projects in Indonesia are under construction. The global layout of production capacity helps the company to serve existing customers, develop new customers, reduce risks arising from trade frictions between regions, and is conducive to the long-term steady development of the enterprise.
Profit forecast: Taking into account the recovery in market demand, the company's net profit for 2024-2025 was adjusted to be 3,988 billion yuan and 4.786 billion yuan (previous values were 30.60 billion yuan and 3.706 billion yuan), and the profit forecast for 2026 was 5.487 billion yuan, with year-on-year growth rates of 28.99%, 20.03%, and 14.64%, respectively. Corresponding PE is 13.5X, 11.3X, and 9.8X respectively, maintaining a “buy” rating.
Risk warning: Industry recovery falls short of expectations, rising raw material prices, and increased risk of international trade friction.